Will McDermott is editor of Scotsman Guide Residential Edition.
Reach him at (800) 297-6061 or firstname.lastname@example.org.
Executive vice president
Center for Responsible Lending
By Will McDermott
Nikitra Bailey is an executive
vice president with the Center for
Responsible Lending (CRL). She leads
CRL’s access to mortgage credit
advocacy to ensure that low-wealth
families and people of color are fairly
served by our nation’s housing-finance system. Bailey holds a
bachelor’s degree from Pennsylvania
State University and received her
Juris Doctor from the University of
Pittsburgh School of Law.
The bar for credit, not consumer protection,
needs to be lowered
Over the past few years, the mortgage industry has seen credit standards tighten to the point where only the
most creditworthy borrowers can hope to get a mortgage loan. Some blame this on regulatory pressures from
rules enacted by the Consumer Financial Protection Bureau (CFPB). Now, the new presidential administration
has promised to roll back federal regulations, and members of the Republican Congress have targeted the CFPB
specifically. We spoke about these issues with Nikitra Baily, executive vice president of the Center for Responsible Lending, a nonprofit, nonpartisan organization focused on fighting predatory lending practices.
What are the biggest mortgage lending issues threatening homebuyers?
Our primary concerns are ensuring that the system provides for access and affordability for all creditworthy borrowers. Right now creditworthy borrowers are being locked out of the system and being underserved. When we
look at recent HMDA [Home Mortgage Disclosure Act] data — specifically the 2015 data — we are concerned to
see low levels of conventional lending to borrowers of color and to lower-wealth families overall. We think that
conventional lenders have responded to the mortgage market with market overcorrections that are pushing
creditworthy borrowers outside of their ability to access credit.
What can be done to reverse this overcorrection?
Currently, what we see happening is that we’ve shifted our analysis of credit risk through recent housing decisions. The Federal Housing Finance Agency, in particular, has moved toward risk-based credit analysis requiring
every bucket of risk to pay for itself. Historically our housing-finance system has pooled credit risk so that we
can have broad availability of credit, and that is something that is not being done now that needs to return. This
trend toward risk-based pricing and loan-guarantee fees and loan-level price adjustments has increased costs
for consumers, and it hasn’t incentivized lending to borrowers who are creditworthy. It has done the reverse of
that. It has incentivized lending for those with the least risky credit profiles.
How does the CRL feel about rolling back the Dodd-Frank Act and repealing CFPB regulations?
It is important to understand that we needed those reforms to protect consumers, and we need to make sure
going forward that Dodd-Frank, and the CFPB’s mortgage protections in particular, remain in place. They rid the
market of many of the risky practices that fueled the meltdown. … So, before we even think about how we move
forward, we have to recognize that we responded to a national catastrophe in the housing market and Dodd-Frank and the CFPB’s mortgage protections stabilized the housing system. … We know that the QM [Qualified
Mortgage] regulations in particular haven’t dried up access to credit. Credit is still readily available. So, before
we discuss any rollbacks of any existing protections, it’s important to keep in mind what is actually working and
how consumers are benefiting from the safety.
There also has been talk of reforming the government-sponsored organizations (GSEs). What are your
thoughts on that?
The GSEs have an affirmative obligation to ensure access to affordable mortgage credit on fair terms to all creditworthy borrowers regardless of race, gender, national origin, familial status or other personal characteristics.
Over the last five years, they have struggled to meet their affordable-housing goals even as those goals have
fallen. Lending at the GSEs is not reaching creditworthy borrowers due to a focus only on borrowers with the
highest credit quality. The impact is that families of color and low-income whites remain locked out of homeownership opportunity and the resulting chance to build wealth through home equity. … Public policy must
address the impact of mortgage discrimination by promoting robust lending to all creditworthy borrowers.
Are you worried about the effect of rising interest rates on affordability?
We are concerned that [rising interest rates] make affordability even more challenging for families. Homeownership for borrowers of color — and for most Americans quite frankly — is the way that people have built wealth
over time. The mortgage payment allows people to build home equity, and then that home equity is used to
foster business development or to weather a financial storm, or it’s passed through generational wealth to succeeding generations. We have to create this opportunity for homeownership for all creditworthy borrowers if
we’re interested in addressing any of our challenges around the racial-wealth gap, because for most Americans,
the equity in their home is their highest form of wealth. n